Friday Letter Operations and Reputations

The best way for the industry to get out ahead of its critics is to highlight its ability to add operational value to portfolio companies. We've come up something that we hope will help.

It's been another rotten week for the reputation of the financial services sector. The LIBOR-fixing scandal in the UK, which has already claimed some high-profile scalps at Barclays, has given the general populace even more reason to believe that bankers and their ilk are unscrupulous shysters who will do whatever it takes to enrich themselves.

This is not a private equity scandal. But the industry is still vulnerable to the backlash, if only by association. (Some critics are already openly bemoaning the mere prospect of ousted Barclays CEO Bob Diamond finding a lucrative berth in private equity once the fuss has died down – an indication of how closely the two areas are associated in many people's minds).

We've said it before and we'll say it again: the industry is facing an unprecedented reputational challenge at the moment, on both sides of the Atlantic (the noise may have subsided in the US lately, but it is bound to increase in pitch and volume as the election draws closer). The 'head in the sand' approach may feel like the easiest and safest option, but it's not a winning strategy in the long run. You don't overcome perceptions of arrogance and opacity by refusing to engage with your critics. And as Barclays has discovered this week, if you fail to act until you absolutely have to, the ramifications can be devastating.

So what's the answer? What's the best way for the industry to get off the back foot?

Clearly lobbying can play a part; producing better quantitative data on performance and returns can help too. But in terms of an overall strategy, we can't help feeling that the best approach is to focus on one key argument: that private equity helps build better businesses.

Of course, there is increasingly a commercial imperative here too; in a low-growth, low-leverage world, driving top line growth is the best way – perhaps the only way – to deliver market-beating returns.

In light of all this, we've decided to launch a brand new awards programme. The PEI Awards for Operational Excellence, which open for entries today, are designed to recognise and highlight the efforts of those firms that are working hard to improve the businesses in their portfolio. That doesn't just mean streamlining operations or cutting costs (although this might be part of it). It's about genuine operational improvements that boost the top line and leave the company better positioned for long-term growth.

We're not suggesting that a set of awards can arrest negative perceptions of the industry overnight. Good news stories like these may even fail to make much of a dent on the public consciousness, at least in the short term (after all, bad news tends to make for more memorable copy).

But it's also true that some firms are doing some great work in this area at the moment – and in our view, the industry as a whole is still not shouting about it loudly or persistently enough. Help us to change that.

Here's how it will work, in practical terms. Over the next month, we'll be accepting entries in six separate sector categories across three regions (EMEA, Asia and North America). Then in August, a panel of independent judges in the three regions will pick their favourite in each of the six categories. The entry process itself is very straightforward: just a short online form, which allows you to provide some key success metrics plus a little bit of colour around the most significant changes made. (NB for simplicity's sake, we're focusing on fully realised investments only)

To download an entry form, click here.

For any further queries, please contact Oliver Smiddy